UniCredit SpA and Banco Santander SA posted better-than-expected second-quarter profit as Europe’s biggest lenders reap the benefits of a series of interest rate increases.
(Bloomberg) — UniCredit SpA and Banco Santander SA posted better-than-expected second-quarter profit as Europe’s biggest lenders reap the benefits of a series of interest rate increases.
UniCredit shares jumped after Chief Executive Officer Andrea Orcel lifted full-year targets for a second straight quarter, with Italy’s second-biggest bank now forecasting 2023 adjusted profit of at least €7.25 billion ($8 billion). Santander also gained in Madrid after the retail-banking giant posted net income of €2.67 billion in the quarter, beating estimates.
Regional lenders have reaped record profits in recent quarters as the European Central Bank’s campaign of inflation-fighting rate hikes reached the one-year mark, yet signs that the cycle is ending are multiplying. Policy makers are debating the endgame for monetary tightening, and demand for more-expensive credit is cratering, both of which may signal a slowdown in profits ahead.
With the boost to targets, Orcel is also signaling confidence in a cost-cutting drive that’s recently been intensified amid inflationary pressure. The bank plans an additional €500 million in cost cuts in an effort to offset higher-than-expected inflation, Bloomberg reported earlier this month.
“Although we cannot predict macroeconomic outcomes, we do know that we are well equipped for the future,” Orcel said in the statement on Wednesday, adding that the forecast for 2023 “serves as a baseline for what we are confident we can achieve next year as well.”
In the three months ending June, UniCredit net income increased to €2.31 billion, better than the €1.9 billion expected by analysts. Revenue rose about 25% from a year earlier on higher income from lending due to higher rates, management of deposit pass-through and trading that more than offset a 1% decline in fees.
Lower Provisions
UniCredit booked €21 million in additional provisioning in the quarter, much less than the €280 million expected by analysts. Orcel said in a conference call with analysts that for the whole industry the cost of risk is more benign, and this adds to “the quality of our portfolio and the quality of coverage we have.”
Orcel said that UniCredit is well positioned for a period of uncertainty with extra provisions — so-called overlays — against potential losses confirmed at about €1.8 billion.
Spanish Profits
For the first time since 2009, Spain became the largest contributor to Santander’s earnings, with its domestic unit making up 22% of the group’s profit. Brazil accounted for 12%. The bank said it was on track to meet its 2023 targets.
Santander has been relying on factors such as rising interest rates in Europe, client growth in Mexico and higher fees in Spain to help meet Chairman Ana Botin’s target of increasing profitability and boosting payouts to investors. The lender is also trying to improve the quality of its assets in the US and Brazil, its second-largest market.
Banco Santander SA plans to double the size of its investment banking operations in the US, seizing an opportunity to hire bankers laid off by larger Wall Street rivals.
The bank has in recent months hired several executives from Credit Suisse and has been in talks to hire dozens more, people familiar with the matter have said. Investment banking currently represents about a third of group profit.
–With assistance from Chiara Remondini, Macarena Muñoz and Antonio Vanuzzo.
(Merges Santander, UniCredit earnings)
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